Rising Home Prices Complicate Appraisals

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The real estate market is recovering but problems with a sizeable share of real estate appraisals also are holding back home sales. Recent surveys by the National Association of Realtors showed 15 percent of Realtors had a contract renegotiated to a lower sales price as a result of a low valuation, while 11 percent said they had a contract cancelled because a home’s appraised value came in below the negotiated price. Another 9 percent reported that a contract was delayed by a low valuation. An aggravating factor is that low inventory can reduce the number of  comparables because there are fewer sales. In this case, an appraiser might  need to look at comparable sales from neighboring areas to get a sense of  current market value. Previously, three comparable homes were the norm for most appraisals.  In many cases there simply aren’t enough apples-to-apples comps to comply with the excessive demands by lenders, so discounted distressed homes are sometimes used in valuating traditional homes in good condition without appropriate adjustments. HOUSE HUNTING TIP: Make sure you work with a resourceful real estate  agent who will do the homework necessary to help the appraiser do an accurate  job. Agents should not tell appraisers how to do their business, or what price  to put on the appraisal. But, it’s useful to the appraiser to have detailed  information on comparables your agent thinks are the most valid given the  current market.